Presentations and Speeches

Notes for Remarks by Mr. Horst Intscher Director, Financial Transactions and Reports Analysis Centre of Canada, Before the Finance Committee of the House of Commons

Ottawa
November 2, 2006

Table of Contents

• What We Are
• Results
• Privacy
• Changes Needed
• Sanitized Money Laundering Case
  • Box A
  • Box B
  • Box C
     

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Horst Intscher, Director

Thank you, Mr. Chairman for that introduction. 

I am pleased to have the opportunity today to make some opening remarks about FINTRAC and what we do. I will also say a few words about why the provisions set out in C-25 are important to FINTRAC and to Canada’s overall anti-money laundering and anti-terrorist financing efforts.

Following my introductory remarks, I will ask Mr. Bulatovic to speak briefly to an example of a sanitized FINTRAC case disclosure. I think an illustrative case is perhaps the best way of showing how our intelligence product can capture the complexity of money laundering.

WHAT WE ARE

FINTRAC was created by the Proceeds of Crime (Money Laundering) Act as an independent agency.  We are required to operate at arm’s length from entities to which we can disclose information.  I will touch upon the reasons for those arrangements a little later on. 

FINTRAC is Canada’s Financial Intelligence Unit (or FIU).  Our mandate is to analyze financial transaction information that a wide range of financial reporting entities are obliged to report. Upon analysis, and if there are reasonable grounds to suspect that information we have received would be relevant to an investigation of money laundering or terrorist financing, FINTRAC must disclose certain portions of that information to the police or to CSIS for investigation.  In short, we provide financial intelligence leads to law enforcement and national security investigative agencies.

It is also worth noting what FINTRAC is not: we are not an investigative body, and we do not have powers to gather evidence or lay charges. FINTRAC does not investigate or prosecute suspected offences.  Instead, we are an analytic body that produces financial intelligence to be disclosed, if appropriate, to help further investigations conducted by law enforcement and security agencies. 

On a daily basis, FINTRAC receives reports on several kinds of financial transactions from financial entities. We analyze this data in combination with information from other sources, such as law enforcement databases, commercially or publicly available databases and, sometimes, information from foreign financial intelligence units.

What we specifically look for are financial transactions or patterns that don’t quite pass the sniff test and that give rise to suspicions of money laundering or terrorist activity financing.  As you can imagine, the movement of illicit funds is often a well hidden and complex affair, involving hundreds of transactions, as well as dozens of individuals and companies. Using state of the art technology and excellent analytic skills, our analysts piece together the information and create a comprehensive picture of money flows. We draw a map that police or CSIS can use to examine the money flows and the suspected criminal activity. 

Although we are required to operate independently and at arm’s length from the police and CSIS, our objective is to support and facilitate their work by providing intelligence leads to them.  We are one element in a larger constellation of organizations whose collective purpose is to combat money laundering and terrorist activity financing. Other elements include police at the federal, provincial and municipal levels, security agencies, prosecutors and the courts.  FINTRAC is situated near the front end of the process, and the information we provide is intended to assist the other agencies to achieve the broader objectives of the Act.

RESULTS

I am pleased to say that the regime that has been put in place here in Canada is working.  It is robust and successful, and is widely recognized as such internationally.

I am also pleased that FINTRAC makes an important contribution to that success.  As we indicated in our Annual Report, tabled a month ago, in 2005-06 we produced 168 case disclosures of suspect financial activity, involving more than $5 billion in transactions. In fact, since FINTRAC began its operations five years ago, we have made a total of 610 case disclosures involving transactions valued at $8.2 billion.

The scope and complexity of our disclosures has also grown dramatically over the past few years, from an average of $3 million in 03-04 to $30 million last year, and about 10 per cent of our cases last year each involved transactions well in excess of $50 million.

Some 32 domestic law enforcement agencies and 10 foreign counterparts have received disclosures from FINTRAC.   I am gratified that, more and more, financial intelligence contributed by FINTRAC is being reflected in investigations, charges and prosecutions.

PRIVACY

Allow me next to say a few words about the protection of privacy. 

Our Act was carefully crafted to provide the highest possible protection for personal information while also making it possible for some information to be disclosed to law enforcement to facilitate the detection and deterrence of serious criminal activity.  The protections begin with the very nature of the institutional arrangements that establish FINTRAC as an independent and arm’s length entity that receives and analyzes reported financial transaction information and that can only pass on such information if particular tests are met.  The information we hold can not be accessed by any other outside body, except by a court-granted production order, and the Act provides for serious criminal penalties to be applied to the unauthorized disclosure of information. 

Our mandate entrusts us with a considerable amount of personal information from individuals and businesses across this country – protecting it is a responsibility that we take very seriously. Members of this Committee have expressed some concerns about the potential impact of the legislative changes on upholding privacy rights.  I want to assure you that I share your preoccupation with privacy protection, and I firmly believe that safeguarding personal information is – and must be – the cornerstone of any effective regime.

THE CHANGES NEEDED- Keeping pace:

Canada has a strong anti-money laundering and anti-terrorist financing regime in place and we can be proud of it. But, we can not rest on our laurels. Methods used to launder money are constantly changing.  International standards that all countries are expected to meet are also rising.  Adjustments are necessary to the legislative framework to keep pace with these changes.

Benefits of the Legislative Amendments:

In this regard, I want to note that there are three key thrusts to the proposed legislative package that are of importance to FINTRAC.  They are:

• Expanding the coverage of the Act to new entities and professions;
• Strengthening the deterrence provisions of the Act; and,
• Expanding the range of information that FINTRAC may disclose.

C-25 will expand the coverage of Canada’s anti-money laundering/anti-terrorist financing regime by bringing additional business sectors within the ambit of the legislation and regulations, for example, dealers in precious metals and stones, and lawyers.  These sectors have an identified vulnerability to money laundering and their inclusion will strengthen Canada’s efforts to combat both money laundering and terrorist activity financing.

Second, the Bill will strengthen the deterrence component of the regime by creating a registry for money service businesses and establishing a system of administrative monetary penalties. These proposed measures will improve compliance with the reporting, record keeping and client identification provisions of the law. This will not only contribute to FINTRAC’s analysis, but will greatly strengthen the general deterrence of money laundering and terrorist activity financing in Canada.

Third, C-25 will make it possible to enrich the intelligence product that FINTRAC can disclose to law enforcement and national security agencies by including some additional information in its disclosures, while at the same time continuing to scrupulously protect the privacy rights of Canadians. This would respond to the needs of law enforcement and make FINTRAC’s core product even more useful to them.

In conclusion, FINTRAC is very supportive of the amendments proposed in Bill C-25 that will ensure Canada’s anti-money laundering and anti-terrorist financing regime remains strong and effective well into the future.

Thank you.  I now ask my colleague, Peter Bulatovic, to quickly provide you an overview of a sanitized case, and then we will be pleased to answer your questions.

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Peter Bulatovic, Assistant Director, Tactical Financial Intelligence

Business Process and Sanitized Money Laundering Case

Thank you Director.

Mr. Chairman, I refer you to the first graphic entitled FINTRAC’s business process. 

FINTRAC Business Process Note: Content in this section may require additional software to view. Consult our Help page. The following is a chart of the FINTRAC business process. For better accessibility, the chart is offered in an image format (GIF) and in a Portable Document Format (PDF). ( GIF - PDF 564 kb)

I am going to quickly run you through this graphic, which will serve to summarize what information we receive and from whom before focusing in on how we conduct our analysis.

I draw your attention to the far left hand side under the heading “receiving information”.

We start with the financial transactions, including deposits and money transfers, when they are undertaken by those entities listed just to the right, such as banks, credit unions, foreign exchange dealers and casinos.

Moving again to the right, these entities must submit reports to FINTRAC when they undertake wire transfers into or out of Canada, or domestic large cash deposits of $10,000 or more.  They must also report suspicious regardless of dollar value. 

Along the bottom left, you will also see that we receive reports on cross-border movements of currency and monetary instruments of $10,000 or more, as well as currency seizures.

This information is reported, almost exclusively, by electronic means and stored in our database. 

Our legislation also allows us to:  access information that is maintained for law enforcement and national security purposes as well as commercial and publicly available databases.

We are also able to query foreign financial intelligence units.

Finally, anyone can voluntarily provide information to us.

Our law enforcement and intelligence partners can and do provide information to us voluntarily. 

Now, how do we analyze all of this information?  We rely heavily on our people and our technology. 

With respect to technology, the electronic receipt of financial information allows us to use IT systems to sift through the reports and link financial transactions. 

In the initial review of these linked transactions, we look for patterns of suspicious financial activity and we assign these to our analysts for a closer look. 

As the analysts develop their cases, they focus on the relevant financial transactions. They verify identities and associations among people and businesses involved in the transactions and the patterns of suspicious financial activity.

When the analysis gives rise to reasonable grounds to suspect that the financial activity would be relevant to a money laundering or terrorist financing investigation, a report is prepared detailing the rationale for disclosure.

Mr. Chairman and honourable members, I would now like to refer you to the second graphic, what we call a link chart that depicts a money laundering case.   This chart demonstrates how our analysis of financial transactions and other sources of information enabled us to link three separate clusters of suspect financial transactions into a larger financial network for investigators. These separate clusters are identified as Boxes A, B and C.

Link Chart of Money Laundering Case The following is a link chart of a money laundering case. For better accessibility, the chart is offered in an image format (GIF) and in a Portable Document Format (PDF). ( GIF - PDF 710 kb )

BOX A

Let me begin by describing the activity in Box A.  A foreign Financial Intelligence Unit advised FINTRAC of a money-laundering investigation of four individuals and a business involved in wiring funds between a number accounts within a bank in the foreign country.  The individuals involved provided Canadian addresses and identification and were described as "Canadian."  The business would wire funds (through several foreign countries) to and between accounts over which the Canadians held power of attorney.  The FIU found this activity suspicious but had no further information on the company.

Upon receipt of this information, FINTRAC tasked an analyst to search our data base for financial transactions to determine the extent, if any, of the financial activity involving the individuals and the business identified.

According to the financial transactions in our database, the company wired several millions of dollars to multiple companies in Canada as can be seen on the chart between Box A and B. 

BOX B

Searches of open sources conducted to obtain contextual information on the Canadian companies identified in Box B yielded very little information.

We found little or no information for the companies in the way of advertising, telephone directory information, or company Web sites.  We were able to confirm that one of the companies was incorporated in Canada.  However the nature of the business identified did not appear to justify the level of financial activity between the companies in Box A and Box B.

Further analysis revealed a suspicious transaction report filed by a Canadian reporting entity on one of these companies. The reporting entity stated:

• The accounts were opened several years ago and were relatively dormant. 
• The dollar value of the wire transfers received into two Canadian business accounts suddenly began to increase. 
• Over a short period, millions of dollars were wired to the accounts held by this business with no rationale as to why the increase occurred.
• Wires received from various foreign companies originated in a country with weak anti-money laundering controls. 
• In addition, the reporting entity indicated that cheques were being issued from a foreign currency exchange and deposited into the company’s account which was inconsistent with the company business identified. 

Several other companies were also found to be operating at the same addresses.  Further when the address changed for one company, which occurred several times in a year, all the other companies followed suit with a change of address.  Two of the companies shared the same Directors and received wire transfers from the same country. 

Our analysis then led us to another company which enabled us to link the financial activity found in Box C.  It is this company, company 7, in the middle of the chart that allowed us to link the three clusters of financial transactions identified on the chart.

Turning to BOX C,

A suspicious transaction report was filed on a company in Box C involving the two Canadians originally identified by the foreign financial intelligence unit.  The report stated that:

• Over a period of five months, the two individuals received 14 wire transfers from four different companies. 
• Efforts had been made to contact the individuals but mail was returned unopened and the phone number provided was incorrect. 
• The reporting entity refused the receipt of several wire transfers.  As a result, a male appeared at the reporting entity and claimed that the funds were owed to him from his business overseas.

When asked about the wires received from the various foreign companies he did not know the companies and why they were sending the payments. 

It is unusual that a customer would receive funds from multiple businesses and not know who these businesses were or why the funds were being sent.

We also received voluntary information from a Canadian Law Enforcement Agency on the same two individuals.  It was suspected that the individuals were using their personal accounts to launder the proceeds of crime.

As a result of our analysis of all of the information available to us, we suspected that the financial transactions identified in the chart would be relevant to an investigation or prosecution of a money laundering offence.  The following internationally recognized indicators of money laundering were identified as applicable to this case:

• Large and/or rapid movement of funds.
• Large incoming wire transfers on behalf of a foreign customer with little or no explanation.
• Unexplained dispersal of funds to multiple beneficiaries. 
• Use of multiple accounts at a single financial institution for no apparent legitimate purpose.
• On-going (law enforcement, foreign FINANCIAL INTELLIGENCE UNIT) investigation. Multiple amounts paid into personal account without explanation.
• Re-activation of a dormant account.
• Atypical business/account behaviour.

Overall in this case we received from eight different reporting entities in excess of 400 electronic funds transfers, several large cash transaction reports as well as suspicious transaction reports.  The case identified suspect financial transactions in excess of 21 million dollars USD and 2 million dollars CDN.

Thank you.

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